Thank You, Mr. Bogle

John C. Bogle died last week at the age of 89 years old.

At this late stage, I’m sure most anyone reading this knows he founded Vanguard, one of the world’s largest asset management firms. I would hope that everyone knows that he helped to invent the index fund.

I had the pleasure of seeing him speak several times over the past few years. I know Jack (as he preferred to be called) was on his second heart, and that he was of failing health. His frailty came through every time I heard him speak – his voice would falter or hesitate, he had difficulty breathing, he moved slowly and with great effort.

But Jack Bogle’s mind was as sharp as ever.

In fact, one thing that struck me every time I listened to him was how willing he was to accept questions and criticisms – arguments against his belief in low-cost passive investing, for example, which were more often than not easy for him to dismantle.

He even accepted – with good grace – that he might have been wrong about one of his more infamous assertions: that a typical investor receives sufficient international diversification by buying the S&P 500 index, which represents the 500 largest American companies.

In fact, Jack Bogle was probably wrong about that one. The S&P 500 is not an international index, though it is comprised largely of huge multinational firms, it does not provide the kind of diversification that an index of EAFE (developed market international) or emerging market stocks would offer to the average portfolio.

His response to such challenges was almost always along the lines of “I might have been wrong there, if you find a way that works better, or works for you, then that’s a good thing.”

It would be nice, in this era of divisiveness, if we could all be so gracious – and graceful.

But any attempt to fete Bogle has to start and end with Vanguard, the index fund, and his commitment to low-cost investing.

Just as a matter of coincidence, I’m re-reading his “Little Book of Common Sense Investing” right now, and it’s as convincing and eloquent an argument for simple, low-cost investing as Burton Malkiel’s classic “A Random Walk Down Wall Street.”

Bogle’s chief messages were that, for all investors, the growth of the economy is the engine that drives the growth of wealth. Rather than try to find the parts of the economy that may grow a little faster or better than others and get out before they slow down, investors could chart a smoother course and easier ride by buying index funds that represent the entire economy. Most investors failed because they traded too much, chasing the performance of what was working at a particular time and switching investments when their holdings no longer performed – which played into a devastating “buy high, sell low” behavior that was destructive towards wealth over the long term.

It’s worth pointing out that as inventor of the index fund and founder of Vanguard, Bogle stood to profit from his advice, but by and large he didn’t, and from most of the evidence, it doesn’t seem like personal enrichment was part of his motivation. This is evidenced by his arguments against frequent trading – by buying and holding an index fund, Bogle and his company were not profiting off of commissions gained by trading, just off of the expense ratios for their funds, which have always been kept at a bare minimum. Vanguard’s mutual ownership (the investors in the funds literally own the company) means that a windfall for Vanguard, or the discovery of some new efficiency, typically leads to even lower costs for its investors, or a higher return at the end of the year.

When I look around at the major asset managers, I see a few great companies. I see a couple of well-intentioned good companies. I see quite a few bad, potentially predatory companies. I don’t see any company as virtuous as Vanguard right now (I have IRA assets at Vanguard right now, in the name of full disclosure).

To be honest, for most people, investing wouldn’t be feasible if it weren’t for Bogle. We’d be fighting over which of the quality actively managed funds offered by companies like Fidelity (I am a Fidelity customer also), American Funds, or T. Rowe Price  offers the best bang for our buck. With the widespread adoption of index funds, the argument is settled.

Bogle firmly believed that the best a long-term investor can do is the market return, and that is why he advocated for simplicity and a more passive approach to investing. He acknowledged that over shorter periods, active managers may beat the market, but his primary concern wasn’t short-term investors trying to make a quick buck.

Bogle was interested in the patient investor whose goal was to build long-term wealth. In the 1970s when Vanguard got its start, value-oriented investors were the long-term equity holders of the era. Pensions took care of the average American’s retirement concerns. That means that when he invented the index fund, Bogle was taking mutual funds to where investors were heading, not playing to the fads and fashions of his time. Bogle’s move not only presaged the rise of the 401(k), the ETF and the passive investing movement, it also set the table for personal finance, self-directed investing and financial independence community.

When his first index fund was launched, many in the financial industry labeled it “Bogle’s folly.” Today, trillions of assets have flowed into equity index mutual funds and ETFs, and passively indexed products continue to dominate fund flows.

I can say that none of us in the personal finance community would be here right now having these discussions in the way that we have them if it weren’t for Jack Bogle. The man has helped to create trillions of dollars in wealth, and he’s saved investors hundreds of billions of dollars in fees.

Thank you Mr. Bogle. May you rest in peace.